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Thursday, June 18, 2015

The South East Asia Network for Development (SEANET) website, http://seanetwork.asia/, has been expanded. It now has more pages, more contents. Check it guys, thanks.

Yesterday, I attended this lecture at the Philippine Institute for Development Studies (PIDS) here in Makati. It's a USAID-funded study aimed to assess the Philippine government’s commitments on the
financial services sector under the ASEAN Framework Agreement on Services (AFAS), the status of its compliance, and the country’s financial
services sector’s competitiveness in comparison to other ASEAN Member States (AMSs).

Here is one indicator in the banking sector. Broad money/GDP ratio, A higher ratio connotes higher level of banking
development. Malaysia, Singapore and Thailand had higher levels of banking
development than the rest of AMSs, the Philippines’ratio was higher only than
those of Indonesia’s and Myanmar’s.

In money supply per capita, the Philippines fell behind
five AMSs; Singapore stood out way above other countries in the region; the Philippines
fell behind five AMSs, including Vietnam.

The Philippines ranked 7th in terms of the ratio of banking
assets to GDP, ranked 6th in banking assets per capita, deposits per capita was
equivalent only to one-third of Thailand’s and one percent of Singapore’s.

In life insurance, Singapore had the largest market both
in terms of assets and premiums while the

Philippines had the smallest market. Market penetration
(insurance premium as percent of GDP) for the Philippines was second to the
lowest among AMSs, and its insurance density (insurance premium per capita or
average spending of each individual on insurance) was the lowest.

In non-life insurance market, the Philippines’ was the
smallest both in terms of assets and

premiums. It is dominated by small companies just as its
life insurance subsector. And the country was second to the lowest in terms of
non-life insurance market penetration and the lowest in terms of non-life
insurance density.

In capital market, the Philippines had virtually the same number of listed
companies during the period 2003-2012 and stood at 268 in 2012. Vietnam
experienced a sustained rise in the number of listed companies during the same period,
overtaking the Philippines in 2010.

In market capitalization, Malaysia and Singapore stood
out as consistent leaders in the region despite a sharp decline in their capitalization
in 2008. The relatively few firms listed in the Philippine Stock Exchange,
accompanied by a relatively high market capitalization, suggest that only a few
large firms carry the ball compared with Thailand. And this also suggests that
a few stocks tend to be highly priced, making the stock market greatly vulnerable
to sudden withdrawal by investors as happened in the last global financial
crisis.

In capital account openness index De Jure, this index takes on higher values the more open the country
is to cross-border capital transactions. Singapore has the highest degree of capital openness among
AMSs. The Philippines has the same
degree of restrictiveness as Thailand, Malaysia and Lao PDR, all of which are
more restrictive compared with Vietnam’s and Indonesia’s.

In De Facto openness index, second chart below, the higher the ratio of total stock of foreign assets and
liabilities to GDP indicates that the country concerned has a de facto higher
degree of capital account openness. Singapore is still the most open, the Philippines is less financially integrated
with the rest of the world compared with other AMSs. This is possibly due to,
among others, the size of the markets for financial instruments in the country
and investment climate.

In financial regulaton, AFAS commitments, the Philippines’ recent equity cap reform for banks is
not yet reflected in the AFAS commitments. AMSs apply different degrees of restrictiveness on the
equity participation of foreign players. Market entry can be further limited by imposing the
requirement that the majority of the board members be nationals.

In financial regulaton, de facto, s

hares of foreign banks in total deposits is less than
10% in Indonesia, Lao PDR, the Philippines and Thailand. Foreign banks seem to focus more on
wholesale banking, probably due to the limited number of branches in countries
where they operate. ASEAN banks still have much room to expand their
presence in the Philippines in the near term, while it is a big challenge for
Philippine banks to penetrate the banking markets in other AMSs.

On the competitiveness of ASEAN narkets and financial institutions,
descriptive analysis, banking subsector.

Descriptive analysis, insurance subsector.

The paper's recommendations as discussed by Dr. Lamberte.

1. Unlock the power of the banking system through the
reduction of intermediation taxes (reserve ratio) and unwinding the special
deposit accounts (SDA).

2. Continue the liberalization of the financial system,
particularly by encouraging more foreign players to enter the domestic
financial market.

3. Combine liberalization with a strong merger and consolidation
policy. Having subsidiaries will allow foreign partners to play a bigger role
in the domestic financial system than if confined to being branches of their
head offices.

4. Introduce measures to support SMEs to scale up their
operations. Raise competitiveness by allowing more branches on the basis of
capital and SME loan portfolio.

Durng the open forum, I noted that the recommendations did not expound much on how the various government regulatory agencies should step back from costly regulations -- Bangko Sentral ng Pilipinas (BSP), SEC and the Bureau of Internal Revenue (BIR) especially. Their regulate-regulate-regulate, tax-tax-tax policies often tie the hands of players, existing and potential players, from engaging in more dynamic competition that benefit the borrowers and the public.

Dr. Lamberte replied that this is the latest paper in a series of studies they have done on the financial sector of the Philippines. Previous papers have touched on those regulatory agencies.

Well, this is a USAID-funded paper and I don't expect that it will take a more radical, less-government role in the financial sector perspective, as the US government itself (SEC, Fed, etc.) keeps piling up plentier and thicker set of regulations yearly. Nonetheless, the data presented by the paper are informative and useful.